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On July 2, Bloomberg columnist Noah Smith wrote a column on Austrian Economists, 9/11 Truthers and Brain Worms.
Noah claims ...
When the Austrian brain-worm invades, you start believing things like: 1) Federal Reserve money-printing is a government plot to boost big banks, 2) prices are rising much faster than anyone thinks, 3) real “inflation” means money-printing, not an increase in prices, 4) printing money can never boost the economy, 5) academic economics is a plot to use mathematical mumbo-jumbo to cover up government giveaways to big banks, etc., etc.
Curiously, and leaving the conspiracy plots aside that many, if most Austrians do not believe, I propose that when the brain-worm invades you start believing things like monetary printing boosts the economy, and inflation only pertains to prices.
Noah goes on to brag that a "history-book moment came when David Henderson of the Naval Postgraduate School defeated Austrian champion Robert Murphy of the Ludwig von Mises Institute in a bet about inflation."
Ho-Hum. Murphy made a bad bet, and one I would have strongly advised against. David Henderson described the bet in My Inflation Bet with Bob Murphy.
I am an Austrian, and I would have made the same bet as Henderson.
Want proof? Then consider this debate I had with Murphy.
Constraints are Key
On November 23, 2010, Austrian economist Robert Murphy predicted "high inflation" in his post Has Mish Deflated the "Inflationistas"?
My reply, which clearly carried the day was Failure to Consider Constraints - My Response to "Has Mish Deflated the Inflationistas?"
Such debates aside, and unless one has brain worms, precisely how is Murphy's ill-advised bet the be all and end all of anything?
Noah rants on about "ShadowStats" as if that ShadowStats speaks for Austrians on inflation. He doesn't. Shadowstats' hyperinflation predictions are as ridiculous as the article Noah Smith wrote.
Noah took everything any alleged Austrian ever said that turned out wrong and trumped it up. Noah failed to mention that Keynesian clowns once believed that inflation and recession could not possibly happen at the same time.
Here is a sentence at that heart of Noah's brain worm infection: "Massive torrents of Fed “money-printing” failed to budge prices; this fact directly cracked the central foundations of Austrian thought."
That sentence is a willful lie, blatant ignorance, or the result of brain worms.
No Austrian economist would suggest money printing "has" to result in price inflation. It doesn't. But the money will go somewhere. Where did it go?
If you have brain worms, you might not know, so here is the answer: asset inflation.
And shocking asset inflation came with the dotcom bubble in 1999 and the housing bubble in 2005. We are back in bubble-land asset inflation again and Noah Smith cannot see it.
Either Smith does not want to see it, or he has brain worms. Take your choice. There are no other reasonable choices.
For another brilliant takedown of Smith's brain worms and "Bloomberg's Unqualified Smear", please see In Defense of Austrian Economics by Pater Tenebrarum on Acting Man.
One never can figure out the timing of such things, but it would be very fitting if Smith's support of brain-worm Keynesianism marked the top of this market and something close to a bottom in gold.
Mike "Mish" Shedlock